Exponential growth: Hospice reimbursement explodes in the 90s

Rapid growth points to greater access, not a greater share of spending

Hospice Medicare reimbursement increased from $445.5 million in 1991 to $3.6 billion in 2001, a 710% increase. Yet, despite the exponential growth in reimbursement, experts say hospices still have far more of the spending pie to claim.

The Centers for Medicare & Medicaid Services (CMS) has released figures showing outlays by both hospice provider type and by type of hospice care and how those outlays have increased from year to year. (See chart.) According to the figures, freestanding hospices garnered the lion’s share of hospice-related reimbursement, as well as the greatest increase in reimbursement. In 1991, freestanding hospices received $219.2 million, which skyrocketed to $2.2 billion in 2001. On the care side, routine home care, by far the most reimbursed type of care, increased from $376.6 million in 1991 to $3.1 billion in 2001.

Numbers tell only one side of the story

The growth in Medicare reimbursement is directly attributed to the increased awareness of hospice programs over recent years and increased access to hospice care, says Jon Keyserling, vice president of public policy and communications for the National Hospice and Palliative Care Organization (NHPCO) in Alexandria, VA. But the numbers tell only one side of the story, he says. While figures suggest fantastic growth, it represents only a small portion of what Medicare spends as a whole.

"The side we don’t see is hospice spending as a percentage of Medicare’s total outlay," says Keyserling.

Indeed, hospices are but a speck on Medicare’s spending radar. For example, the Medicare program has 40 million enrollees and annual expenditures of about $225 billion. Hospice expenditures represent less than 2% of total Medicare spending. In comparison, CMS says physician fees were an estimated $41.2 billion in 2001 and are expected to grow to $41.7 billion by the end of 2002.

"Even though the growth in hospice reimbursement is impressive, hospices still have a long way to go if you look at market penetration," says Lisa Spoden, PhD, executive director of the Kentucky Association of Hospice and Palliative Care in Pikeville.

Something to cheer about

Still, the growth of hospices’ revenue from Medicare is something to cheer about. It is evidence that efforts to raise awareness about hospice care have been working. In recent years, the hospice industry has done everything from promoting a hospice postage stamp to lobbying Congress for friendlier regulations that would not only increase the number of patients and families using hospice, but also ease access.

There also has been considerable momentum in end-of-life care. The Robert Wood Johnson Foundation-sponsored Last Acts program has raised public awareness about a number of issues related to death and dying, including palliative care and pain management. The Foundation also has provided grants to state coalitions studying ways to improve end-of-life care.

There has been considerable movement in raising awareness among physicians, as well. Most notably, the American Medical Association developed a program, called Education for Physicians on End of Life Care, to train doctors in end-of-life care. The hope is that these physicians will go back to their facilities and educate their colleagues and community about end-of-life care.

Are the numbers a threat?

Despite the advances in promoting hospice services, the numbers pose a potential threat, as well. The rapid growth in Medicare reimbursement over the past 10 years leaves open the possibility that the figures will be interpreted as out-of-control spending among hospices. If this seems far-fetched, one needs to look back only as recently as the 1990s, when the Health Care Financing Administration (HCFA) launched Operation Restore Trust and set its sights on hospices, using the same figures cited earlier in this article to argue that fraud was the likely explanation for such rapid growth.

Skeptics contended that too many patients were being admitted to hospices improperly because many lived well past the six-month prognosis of their physicians. Even though top HCFA officials said the determination of six months or less to live was an estimate based on a physician’s best judgment and should not be taken as an absolute, some in the Office of the Inspector General’s (OIG) office interpreted the regulation more strictly.

The hospice industry responded and was eventually able to placate the rules police, but the damage had already been done. Fearing the wrath of OIG, many physicians became reluctant to refer patients to hospice months before their patients died. Instead, they waited until death was imminent.

To prevent the second coming of Operation Restore Trust, the hospice industry will turn to the same arguments it made in the previous decade: Hospices don’t waste money, they save it, and at the same time they improve the quality of life for patients who otherwise would have suffered needlessly in their final weeks of life.

Specifically, Spoden points to the Assistant Secretary of Planning & Evaluation Study, done in 2000, which showed that hospice care cut down on expensive hospitalization. Highlights of the study include:

  • The average hospice length of stay is short. Over 50% of hospice patients are under hospice care for fewer than 30 days, 25% for a week or less, and 7% for two days for less.
  • Hospice residents are less likely to be hospitalized in the last 30 days of life (12.5% vs. 41.3%) and last 90 days (24.5% vs. 53%).
  • Hospice patients received superior pain assessments compared to those who did not receive hospice.

Another piece of evidence that will be dusted off in the event of spending scrutiny is the study done by Lewin-VHI in 1994. The health care consulting firm’s analysis of cost savings of the Medicare Hospice Benefit said that for every dollar the government spent on hospice, it saved $1.52 in Part A and Part B expenditures.

Argument: Payment has fallen behind

Another argument the industry is likely to use to combat critics is the fact that hospice reimbursement has not enjoyed the same increases as other segments of the health care industry, such as physician reimbursement.

In the late 1990s, the NHPCO hired actuarial firm Milliman & Robertson to study hospice reimbursement. The study compared cost data from 1982, when the Medicare hospice benefit was first established, to cost figures from 1998-1999. The study pointed out a number of areas in which Medicare failed to keep up with hospice costs:

  • Patients are enrolling in hospices later. With patients electing the hospice benefit closer to the time of death, there is less revenue opportunity for hospices. According to the study, the average length of service has dropped to 40 days, while the original Medicare hospice benefit set a rate based on a 70-day length of service.
  • New technology is being implemented. Advances in technology, breakthrough therapies, and prescription drugs have increased the cost of hospice care far beyond Medicare’s annual market basket update, which is used to determine annual reimbursement increases. For example, while the hospice per diem rate has doubled since the early 1980s, prescription drug costs have risen 1,500%, from about $1 of the per diem rate in 1982 to $16 of the per diem rate in 1999.
  • There has been an increase in outpatient hospital therapies. The advent of palliative care chemotherapy and radiation treatment increased cost per day by more than $17 per day. Medicare originally envisioned outpatient therapies to cost about $3 of the per diem reimbursement.

In 1982, when hospice care was added to the Medicare benefit, the routine home care rate was set at $41.46 per day. At that time, the reimbursement rate did not include an annual inflationary update. It wasn’t until subsequent congressional action that a specific rate increase was included when legislation tied it to the hospital market basket.

The M&R report is perhaps the best evidence the hospice industry has to show that Medicare’s per diem reimbursement is out of step with the scope of care hospices provide today. The NHPCO is now using this report to persuade Congress to raise per diem rates to reflect today’s needs.

More important battles

Keyserling and Spoden believe the odds favor the industry not coming under the scrutiny it has in the past. But they preface their optimism by saying one uninformed regulator can cause problems. Negative attention would be especially unwelcome as the industry lobbies the federal government and its lawmakers to update hospice reimbursement and create friendlier rules that would increase access to hospice care, including palliative care programs, prior to a terminal illness certification by the patient’s physician.

In many ways, the growth numbers also reflect the momentum the hospice industry and end-of-life-care in general have been enjoying. The topic of death and dying seems to be inching its way outside of health care circles and into the mainstream. Recent communications by Medicare leadership and health care organizations, such as the Institute of Medicine, have solidified hospice’s place in the system and encouraged providers to use hospice services. Perhaps the lesson from the earlier examination of hospice’s rapid growth has garnered some understanding from payers, providers, and the public.

"I hope we have all learned from Operation Restore Trust," says Spoden.